Home finance options for older homeowners are better than ever before
David Forsdyke, our Later Life Finance expert, describes the increasing choice of good value products available for older homeowners, and why professional advice is now more important than ever.
I’ve been involved in the mortgage market since 1994. In 2005 I decided to take an additional qualification in Lifetime Mortgages as I could see a growing need for advice to homeowners over 55. Options for older borrowers were very limited back then, and interest rates were high (Lifetime Mortgages were around 7%).
Roll the clock forward 15 years to today and, I’m pleased to say, we have a very different picture! Older homeowners have more choice than ever before when it comes to borrowing or refinancing options. In addition, interest rates for Lifetime Mortgages have dropped dramatically, with three lenders offering the lowest rate we’ve ever seen, starting at 2.28%*. Lifetime Mortgages are fixed for life, so for many this could be the ideal time to lock into a long term cheap rate.
This is good news for those in or approaching retirement, but it does come with some challenges. Lifetime Mortgages have evolved dramatically in the last few years, with flexible features and a host of other new benefits to be considered.
However, navigating a way through the choices to the right solution is tricky. Cheapest isn’t always best, so it is now more important than ever to get good quality advice. A host of other mortgage and borrowing options for those in or approaching retirement have also emerged in recent year. If you’re over 55 you now have a wide variety of mortgage and home finance solutions available to you.
With increased choice comes an increased risk of picking the wrong solution. It is therefore important to understand all the options and to seek advice from someone who has clear view across the whole market in order to determine what the most appropriate answer is.
What is ‘Later Life Finance’?
We use the term to describe any product that might be appropriate for an older homeowner. Many lenders in the ‘Later Life’ space have set a minimum age of 55. The products now available for older homeowners include;
Unlike a normal mortgage, this has no fixed term. Instead the loan runs until the borrower(s) die or have to move out permanently into care. At that point the property is sold and the mortgage repaid. Interest is charged in the same way as any other mortgage, but with a Lifetime Mortgage the borrower can choose to let it roll up on top of the loan, pay some or all of it each month, or make ad hoc repayments. The amount you can borrow is based on your age and the value of your property.
- Retirement Interest Only Mortgages
Often called RIO Mortgages, these too have no fixed term. The loan runs until the borrower(s) die or have to move out permanently into care. The borrower pays the interest every month.
The term ‘Hybrid’ is often used to describe mortgage products that look like a regular mortgage, but then allow you to transition into a Lifetime Mortgage at a later date.
It used to be that mortgage lenders would draw the line at a certain age, refusing to lend beyond the age of, say, 75. An increasing number of lenders are reviewing and extending their criteria, and some now allow for older borrowers or have removed their age limits.
- Bridging Loans and second charges
In some scenarios, access to short-term borrowing can be a huge advantage. For example, if you are downsizing but want or need to move into your new home before your current one is sold, a bridging loan with retained interest (so there are no monthly payments) can be a useful tool in giving you time to sort out your current home.
How do I work out what’s best?
I recommend you seek advice from an adviser who can give you as broad a view as possible, and who has access to the full range of products and options. They must be qualified not only in Mortgages but also in Equity Release to give advice on all the options above. You’ll need to think carefully about what you need both now and in the future, as you don’t want a product that could cause you difficulties in, say, 10 years' time.
At Knight Frank Finance, our Later Life Finance advisers are fully qualified and are not tied to any provider. This means they will can look across the whole market for you and determine the most suitable solution for your needs.
If you are over 55 and are thinking about releasing the wealth tied up in your property to help family, speak to David or a member of his Later Life Finance team. You can contact us or visit our Borrowing Into Retirement pages.
*Based on Lifetime Mortgage rate research on 3rd September 2020, the lowest available rate is 2.28% (MER) 2.30% (AER). The actual rate you will pay depends on your age, the value of your property, and the lenders criteria at the time of application. Speak to an adviser to find out more.